It seems, though, that you’d be wrong. At a conference yesterday, several of the sessions focused on the state of play in digital investments. It was clear that the game has moved on. That initial surge of enthusiasm which greeted the arrival of god-knows-how-many new more-or-less-mass-market online services has now morphed into growing anxiety about the difficulty (and cost) of acquiring worthwhile numbers of more-or-less-mass-market customers.
My regular reader will know that this comes as no surprise at all to me. Almost all new businesses go through a customer acquisition crisis, and I’ve always thought that online investing businesses are likely to suffer more than most: in addition to all the usual problems, they have one great big additional one, namely a widespread lack of consumer appetite for the whole idea.
But what did come as a surprise at yesterday’s event was the amount of fairly desperate and highly tentative casting-about for any kind of solution to the crisis. What on earth is to be done, people asked. No idea, others answered.
I couldn’t help thinking that this kind of exchange reflected a really extraordinary level of obtuseness among those involved. Over exactly the same period that this wave of new services has been launching and failing, elsewhere we’ve seen by far and away the most spectacular success of all time in the field of online investing, but we’re bizarrely reluctant to learn the clear and obvious lessons from it.
This is of course the area of auto-enrolled workplace pensions, where something like nine million new customer accounts have been opened over the last few years and opt-out rates have remained well below 10%. This is a figure which compares stupendously well with the 0.1% or so of consumers who’ve opted in to other new investment propositions over the same period.
There is pretty clearly one big reason why no-one has tried to learn anything much from the triumph of auto enrolment, and the clue is of course in the name: since the auto enrolment mechanism isn’t available to investment providers outside the field of workplace pensions, it’s assumed that they’re playing a whole different (and much harder) ballgame and there’s no point in comparing the two.
It’s certainly true that the auto-enrolment principle makes a huge difference, and results without it will be on a different level. But quite frankly, even if they were 99% worse, they’d still be better than they are at the moment. And anyway, a few moments’ thought makes it clear that the success of auto enrolled pensions also depends at least in part on other characteristics which are perfectly transferable. Three of these stand out:
- Most important, the principle of a default investment option which means that people absolutely don’t need to engage with the whole business of investing or investment decision-making to get a satisfactory outcome. (As I’ve said many times, this is a completely and fundamentally different approach from your typical online process with its daunting attitude-to-risk questionnaire and range of risk-rated funds.)
- The adoption, at least for those involved from the start, of what behavioural economics guru Richard Thaler calls the “pay more tomorrow” principle, beginning with a painlessly-minimal level of contributions and escalating gradually over several years.
- The “lock-away” mechanism,” obviously generic to pension pots which aren’t accessible until age 55 but in fact popular with consumers who don’t want to be tempted to access any of their long-term savings (and also obviously appropriate for investments which are described as being intended for the medium to long term.)
In addition, it’s worth saying that in fact some organisations – particularly banks – could if they chose get reasonably close to the principle of auto-enrolment anyway. One of the few genuinely innovative propositions on the market, Moneybox, shows the way with its “rounding up” mechanism, rounding all your credit card expenditures up to the nearest pound and investing the amount greater than the cost of each item. Moneybox doesn’t have the money to make this idea famous, and I doubt if one in a hundred consumers has heard of it: also, the odd 20-something pence overpayment on a coffee or a sandwich probably seems too small to be worth bothering with. But if you could round up, say, all payments above £30 from your current account to the nearest £10, you’d really get somewhere.
Tucked away in that last paragraph, you’ll have noted a point about the need to spend money to make new services famous. This, again, is a challenge, and a cost, that auto-enrolled pensions providers haven’t faced, and is another reason why I’m not saying that the auto-enrolment success story can simply be transferred wholesale into the digital non-pension sector.
But a great deal of it can, and I’m sure it has the potential to help providers achieve very much better results than they’re achieving at the moment. I simply don’t understand why they’re so reluctant to look at it, or to learn from it.